Record Demand for Mortgage Loans Increases Potential for Fraud

[Jun 20, 2009.]

 

The Federal Housing Administration (FHA) is facing record demand for its home mortgages, which are backed by the US government. The failure of the once flourishing sub-prime mortgage market has resulted in many more home buyers seeking mortgages through FHA. Kenneth Donohue, Inspector General of the US Department of Housing and Urban Development, cautioned legislators that record requests for FHA mortgage loans could "overtax the oversight resources of FHA, making careful and comprehensive lender monitoring difficult." This could lead to increased incidences of faulty underwriting, questionable loan approvals, and outright mortgage loan fraud if FHA is unable to properly monitor its approved lenders.

Compare Mortgage Lenders: Shop Loans Before Looking at Homes

Consumers are encouraged to diligently shop and compare mortgage lenders and loans before shopping for a home. Whether or not homebuyers are seeking an FHA mortgage, it's wise to beware of potential mortgage fraud. Although the majority of mortgage companies are honest, it's possible to get caught up in loan scams and other risky situations. Borrowers with bad credit or no credit may be targeted for mortgage fraud schemes. When shopping for a mortgage for buying a home or refinancing, consumers can take precautions to avoid mortgage fraud.

Mortgage Companies: Sounds to Good to Be True?

Reputable mortgage lenders carefully approve loans to ensure that borrowers can afford to repay the loan, and that nothing "iffy" occurs in the application and approval process. When a mortgage loan seems too easy or too good to be true, it probably is:

• We don't require much information: If a mortgage company offers to provide financing without appropriate verification of income, employment and credit, look for another lender.


• Sure, you can borrow more: Mortgage companies typically approve mortgage loans according to industry standards that guard against borrowing beyond customers' ability to repay. If a mortgage lender or broker substitutes reassurances and encouragement for a thorough mortgage application and underwriting process, and offers to loan more than borrowers can afford, potential borrowers should suspect fraud. 


• Don't worry, no one will know: A sign of mortgage fraud occurs when a mortgage company representative or mortgage broker assures a borrower that it's ok to falsify information on a loan application, and suggests that know one will ever find out.  


• We can fix this: Eager homebuyers may be easily lured into mortgage fraud by their desire to buy their first home, or a "perfect" home that's beyond their financial reach. Mortgage companies or brokers who falsify emplyment or financial information to gain loan approval are guilty of mortgage fraud, and so are the borrowers who try to get loan approval based on inaccurate information.

Mortgage fraud is a major crime, and claiming  ignorance won't help in avoiding prosecution. Paying more to get a loan through a reputable mortgage company is worthwhile when homebuyers understand that they can end up in the "big house" for committing mortgage fraud when buying a house.

 

About Author:

Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage lending and loss mitigation. She enjoys writing articles about personal finance and debt management. Karen holds an MA degree in English from the University of Nevada, Reno.